Does GM's New Electric Car Matter?
General Motors (NYS: GM) dropped a surprise on Wednesday: After spending the past few years pooh-poohing the idea of selling a purely electric-powered car in the U.S., the General announced that it will sell an electric version of its tiny Chevy Spark here starting in 2013.
The whole point of the Chevy Volt, to hear GM tell it, is that it's an electric car with a normal car's range, thanks to the gas engine that essentially serves as an onboard generator. Regular electric vehicles (EVs), with their limited ranges, induce "range anxiety," the General has long maintained. But now, the tune has changed: The Spark EV is likely to have a range of 100 miles or less, yet it's coming to America.
It's an interesting strategic move, for a few different reasons. But in the grand scheme of things, how much does it -- or any electric car -- really matter right now?
It depends on whom you ask.
Putting electric-car sales in perspective
Electric vehicles get an awful lot of attention from the press, including here at the Fool, but so far, their impact on the U.S. market has been microscopic: Through September, Nissan (OTC: NSANY.PK) had sold just over 7,000 Leafs here this year, while GM has moved less than 4,000 copies of its sorta-EV-sorta-hybrid Chevy Volt. And the much-hyped Tesla Motors (NAS: TSLA) has sold fewer than 2,000 cars ever, though it does have more than 5,000 orders for its upcoming Model S sedan.
Each of those totals is arguably impressive in some way, given the enormous technological hurdles and barriers to adoption faced by the programs that brought (or in the case of the Model S, is bringing) each of those cars to market. And in each case, there's an argument to be made that the low sales totals aren't (entirely) due to a lack of demand. These are new technologies, mass production is still a work in progress, and supplies of critical parts are still constrained.
But all that said, some context is necessary here -- context that often gets lost in overheated discussions of what many view as a paradigm-shifting technology: Ford (NYS: F) sells more than 10,000 F-series pickups in the U.S. every single week -- almost 2,000 a day, on average.
Or, put another way: 13 million vehicles will be sold in the U.S. this year, give or take, and statistically speaking, almost none of them will be EVs.
But that doesn't mean they're not important. Important to whom, though, is an interesting question.
The significance of the Spark
Depending on where you live, you may never see an electric Spark, which is based on the even-tinier sibling of the just-launched subcompact Chevy Sonic. It might be offered in just a few markets -- GM is being coy about which, though it did mention "California" in the press release -- and the sales totals seem likely to be very small, maybe even smaller than we've seen so far with the Leaf. Its impact on GM's bottom line is likely to be somewhere between "negligible" and "microscopic."
But that's not why GM is going to offer it here. That's not why the Leaf exists, it's not why Ford's upcoming Focus Electric will exist, and it's not why Toyota (NYS: TM) has invested so much in electric R&D (and in Tesla Motors). Looking at EVs as bottom-line exercises for the major automakers misses the point, at least in the near term. These cars are at (or coming to) your local dealership for two reasons, neither of which is really about the profits they'll generate directly.
First, these cars represent a bet that EVs will become much more widespread in a few years. Batteries remain expensive, but they'll get cheaper. Huge investments are being made in battery-production capacity by companies from A123 Systems (NAS: AONE) , which will supply the Spark EV's sparks, to enormous auto supplier Johnson Controls (NYS: JCI) . By mid-decade, battery supply may exceed demand. Meanwhile, more huge investments are being made in building out an electric-car infrastructure, in California and elsewhere.
The upshot: Batteries will become cheaper and better, improving EV range and lowering prices -- and a network of recharging stations will make EVs viable for longer trips, just like gasoline cars. Meanwhile, the few EVs sold now help to defray the R&D costs of the much larger wave we'll see later on. Lower prices, range comparable to conventional cars, and a developed infrastructure together are likely to lead to mass-market acceptance of EVs, or so the thinking goes.
That's all important. But it's not the real, bottom-line reason that the Spark EV is coming to America.
The real reason the Spark is coming here
The Spark -- EV and otherwise; a gas-powered version will also be sold here -- isn't really a car that was designed with U.S. drivers and U.S. tastes in mind. Like its larger siblings, the Cruze and the Sonic, it was designed mostly in South Korea for markets all around the world, but the Spark is a size smaller than anything in GM's (or Ford's) current U.S. lineup. And unlike the Cruze and Sonic, the Spark almost certainly won't be built in the United States. It may be imported from South Korea. And even then, GM's margins on the car are likely to be tiny. The EV may even be sold at a loss.
Still to be answered is this: Will U.S. consumers go for such a small car, electric-powered or otherwise? It doesn't really matter: GM needs to offer the Spark, and its EV variant, for the credits it'll get under the new Corporate Average Fuel Economy rules. The gas-powered Spark and its tiny 1.2-liter engine will probably get well over 40 miles per gallon -- and the electric version will qualify for special, extra credits under the new rules.
That, in turn, will give GM some breathing room under the rules to offer more of the larger, thirstier vehicles that it knows Americans want. Those are the vehicles that drive the bulk of GM's profits. So yes, the Spark EV matters a lot -- to GM. And that's why it's coming to America.
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At the time this article was published Fool contributorJohn Rosevearowns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by@jrosevear. The Motley Fool owns shares of Ford.Motley Fool newsletter serviceshave recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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